Protecting Fashion in the Metaverse

09/08/22

New technologies are forcing brand owners to implement registration and enforcement strategies to protect their intellectual property rights in the metaverse.

Digital immersive experiences have become increasingly popular among users of all ages and backgrounds. These experiences take place in a virtual world: the “metaverse.” The term metaverse means a three-dimensional version of the Internet where users can access virtual shops, branded goods, and services such as concerts, sporting events, classes and other immersive experiences through a virtual reality headset.

As a prolific emerging technology, the metaverse creates financial opportunities while raising complex legal issues. With the rise of NFT technologies and amateur and professional gaming, consumers in the digital space seek branded luxury goods, whether real, digital or both. For example, creating virtual “apparel” for digital characters or avatars combined with real-world products has been an effective marketing tool for brands. However, these new technologies are forcing brand owners to implement registration and enforcement strategies to protect their intellectual property rights in the metaverse.

 

Real World Goods and Services vs. Digital Counterparts

The personal customization of video game characters using digital fashion is a popular trend that complements the immersive nature of the gaming experience. Undoubtedly, players want their avatars to look good, as virtual counterparts of their IRL or “in real life” persona. As a result, fashion brands and video game developers are profiting from this growing desire for fashion and collaborating with designers and celebrities to this end. Several gaming platforms such as Fortnite, Grand Theft Auto and Roblox are pioneers in pushing the immersive experience with fashion customization. Projects involving high fashion include Balenciaga + Fortnite, Burberry for Roblox, and notable NFT releases such as “Louis,” the Louis Vuitton game app, and the sale of the “Burberry Blanko” character.

Fashion brands use NFTs for branding and aspirational consumer demand by connecting with young consumers in the digital space. The NFTs allow consumers early access to events, discounts and members-only communities. The combination of digital and real-world experiences significantly impacts marketing a brand expansion.

 

Technology Is Calling for Legal Precedent

Arguably, a strong portfolio of registered trademarks protecting real-world physical goods should protect the use of their virtual counterparts. However, with the increased popularity of digital fashion comes potential exposure to infringement. The metaverse is forcing brand owners to protect their brands by strategically using trademark filings to extend the brand use in the digital space and copyright to protect the digital representation of their marks. Brand owners have multiple options, and these are not one size fits all.

Several cases are currently working their way through U.S. courts. Early this year, Hermes International and Hermes Paris filed a trademark infringement action against Mason Rothschild, alleging, among other arguments, that Rothschild’s “MetaBirkins” series of NFTs misappropriate the luxury brand’s famous Birkin handbags. In 2021, Rothschild designed a series of NFTs, and each NFT is a single image of a blurry, fur-covered digital representation of a physical Birkin handbag.

Rothschild is framing his defense on First Amendment grounds, claiming his Metabirkin NFTs are an art experiment. To date, Rothschild’s “experiment” has surpassed $1.1 million in sales. The case is Hermes International v. Mason Rothchild, Case No. 1:22-cv-00384 (SDNY). Also pending in the Southern District of New York is Nike v. StockX, Case No. 1:22-cv-0038. This case is interesting because StockX argues that it is not selling the NFT as digital art but as a “claim ticket” to the original Nike sneakers the company sells and stores in its facilities. Other interesting cases to follow pending in the Ninth District are Yuga Labs v. Ripps, Case No. 2:22-cv-04355 (trademark infringement involving the Bored Ape Yacht Club NFTs), and Hunley v. Instagram, Case No. 22-15293 (copyright infringement class action involving embedded photographs).

 

Expanding Trademark Protection to Digital Goods: Classification, Use and Territory

Expanding protection of the scope of tangible goods to the digital space is a valuable tool for brand owners. Trademark registration affords the owner of the mark a presumption of the existence of a valid trademark, a notice of registration to potential infringers, possible counterfeiting claims, and damages. For these reasons, the U.S. Patent and Trademark Office (USPTO), has been experiencing a significant uptick in trademark applications for virtual goods and services.

The USPTO divides marks into 45 categories of goods and services known as international classes. Early in the trademark application process, the applicant must carefully select the correct classification. For example, clothing items, including footwear, fall in class 25. Thus, if an applicant intends to use a mark in commerce for shorts, T-shirts, socks and footwear, applying for the same mark in class 5, which covers pharmaceutical products, would fail the examination process.

Navigating the trademark classification system concerning physical and digital goods involves specific considerations. It is important to note that from a trademark classification standpoint, the branded physical goods people use in the real world, are likely different products from their corresponding digital representation. For example, the Burberry handbag you take out on date night (a class 18 good) differs from a digital replica of the same handbag design purchased for a video game character, which is likely to fall under class 9.

Recent trademark applications covering virtual goods and services typically fall under the same “metaverse classes,” namely, class 9 for downloadable virtual goods through software or application software, and class 42 for online non-downloadable virtual goods and design of virtual fashion. Fashion brand owners with a significant trademark portfolio in apparel will likely not monitor filings in international classes covering downloadable and non-downloadable data. The metaverse is constantly evolving. For this reason, brand owners are encouraged to consider trademark filing strategies to protect real-world goods in the metaverse. Additionally, brand owners should monitor third-party filings in the metaverse classes—namely, class 9 (downloadable virtual goods), 35 (virtual retail stores), 41 (virtual entertainment services), and 42 (non-downloadable virtual goods), to minimize the risks of third parties claiming superior rights in the digital space.

Another important consideration related to trademark filing strategy is that trademarks are territorial while the metaverse is not. Trademark practitioners agree that brand owners should apply registration strategies to digital goods as they apply to tangible goods. Consequently, brand owners should register digital goods and services in territories where their companies intend to do business.

Moreover, brand owners must remember that to secure the registration of digital goods and services successfully, the owner must file a statement of use within three to four years of filing the application. It is good practice for brand owners to identify how they want their marks to operate in the metaverse before submitting applications without a defined strategy. The lack of direction in this regard could lead to cancellation proceedings and unnecessary legal expenses.

 

Copyright Protection: Protecting the Digital Representation of the Goods

Unlike trademarks, copyrights do not require the owner to use the work in commerce to protect the rights. However, copyright registration is a prerequisite to filing an action for infringement. Additionally, depending on the platform, registration is often required to maintain a takedown notice under the Digital Millennium Copyright Act (DMCA). Fashion brands often use pictorial, graphic and multimedia works in advertising campaigns, catalogs and other marketing materials that are separate from the utilitarian aspect of the goods. These works, some of which could appear as NFTs, qualify for copyright protection.

For copyrighted works, the DMCA takedown notices, according to 17 U.S.C. §512(c), are helpful enforcement tools. For example, if a third party uses copyrighted photographs or visual works on social media to promote the third party’s products or platform without the brand owner’s authorization. Takedown notices are also available against NFT marketplaces, but the process is complicated because NFTs are digital tokens that point elsewhere outside the marketplace, for example, a server. Issuing the takedown notice to the marketplace site operator is the first step, although multiple notices to the decentralized servers might be necessary to disable the NFT.

 

Conclusion: Best Practices

A strong trademark registration strategy for virtual goods is a cost-effective tool for brand owners. Perhaps in the near future, courts will provide more specific guidance as to whether trademark registration covering physical goods and services will also apply to the digital version. Until then, registration is the first step for trademark expansion in the metaverse.

In addition to registration, brand owners must increase monitoring services to identify potential unlawful uses of their brands, cease and desist letters, domain registration, takedown notices and litigation. An effective trademark enforcement strategy will likely actively deter third parties from attempting to monetize on the goodwill of brands in the digital space.

about the attorney

Francelina Perdomo Klukosky

Partner

Ms. Perdomo focuses her practice on intellectual property, corporate and commercial matters involving copyrights, trademarks, patents, false advertising, technology, digital media, music publishing, licensing, publicity rights, live events, table-top, and video games. Francelina represents authors, content creators and developers, music publishing, record and production companies in their ongoing business affairs. She often serves as outside general counsel to companies handling a variety of intellectual property and commercial matters.

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